Question

Combat Fire, Inc. manufactures steel cylinders and nozzles for two models of fire extinguishers: (1) a home fire extinguisher and (2) a commercial fire extinguisher. The home model is a high-volume (54,000 units), half-gallon cylinder that holds 2 1/2 pounds of multi-purpose dry chemical at 480 PSI. The commercial model is a low-volume (10,200 units), two-gallon cylinder that holds 10 pounds of multi-purpose dry chemical at 390 PSI. Both products require 1.5 hours of direct labor for completion. Therefore, total annual direct labor hours are 96,300 or [1.5 hours × (54,000 + 10,200)]. Expected annual manufacturing overhead is $1,542,500. Thus, the predetermined overhead rate is $16.02 or ($1,542,500 ÷ 96,300) per direct labor hour. The direct materials cost per unit is $18.50 for the home model and $26.50 for the commercial model. The direct labor cost is $19 per unit for both the home and the commercial models.

The company’s managers identified six activity cost pools and related cost drivers and accumulated overhead by cost pool as follows:

								Expected Use of Drivers by Product
Activity Cost Pools		Cost Drivers		Estimated Overhead		Expected Use of Cost Drivers		Home		Commercial
Receiving		Pounds		$80,000		335,000		215,000		120,000
Forming		Machine hours		145,000		35,000		27,000		8,000
Assembling		Number of parts		400,000		217,000		165,000		52,000
Testing		Number of tests		45,000		25,500		15,500		10,000
Painting		Gallons		52,500		5,258		3,680		1,578
Packing and shipping		Pounds		820,000		335,000		215,000		120,000
				$1,542,500

Under ABC, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver). (Round overhead rate to 2 decimal places, e.g. 12.25.)

Activity Cost Pool		Estimated Overhead		Expected Use of Cost Drivers				Activity-Based Overhead Rate
Receiving		$enter a dollar amount		enter an amount of pounds		Pounds		$enter a dollar amount per pound rounded to 2 decimal places	per pound
Forming		enter a dollar amount		enter a number of machine hours		Machine hours		$enter a dollar amount per machine hour rounded to 2 decimal places	per machine hour
Assembling		enter a dollar amount		enter a number of parts		Parts		$enter a dollar amount per part rounded to 2 decimal places	per part
Testing		enter a dollar amount		enter a number of tests		Tests		$enter a dollar amount per test rounded to 2 decimal places	per test
Painting		enter a dollar amount		enter an amount of gallons		Gallons		$enter a dollar amount per gallon rounded to 2 decimal places	per gallon
Packing and shipping		enter a dollar amount		enter an amount of pounds		Pounds		$enter a dollar amount per pound rounded to 2 decimal places	per pound
		$enter a total amount

Answer 1

Answer

Activity cost pools	Estimated overheads	Expected Use of cost driver	Activity-based overhead rates
Receiving	$              80,000	335,000	0.24
Forming	$            145,000	35,000	4.14
Assembling	$            400,000	217,000	1.84
Testing	$              45,000	25,500	1.76
Painting	$              52,500	5,258	9.98
Packing	$            820,000	335,000	2.45
Total	$         1,542,500

Note = Activity-based overhead rates = Estimated overheads / Expected Use of cost driver

In case of any doubt, please comment.